LectureAssignment05 - of an excise tax 4 Show how the price...

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ECONOMICS 100 Lecture Assignment #5 (Tax Incidence) Source: LR11, Chapter 4, pages 86-88; LR10, Chapter 4, page 81-83. Done here as another example of an “intervention” by government in a market. Your text includes it in the chapter on Elasticity. Consider a competitive market that is initially in equilibrium. Now add a per unit tax (excise tax) of $T per unit. 1. Use a diagram to analyze the impact of the tax (by shifting the S schedule). What happens to the price that consumers pay? What happens to the price that producers receive? How much tax revenue is collected by the government? 2. How could we "divide" the burden of the tax between producers and consumers? 3. Show how the price elasticity of demand impacts on this division of the burdens
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Unformatted text preview: of an excise tax. 4. Show how the price elasticity of supply impacts on this division of the burdens of an excise tax. 5. As an alternative to #1 above, show the impact of the tax by shifting the demand schedule. 6. Some people say that a tax "paid by / collected from consumers" has a different effect from a tax "paid by / collected from producers". What do you say? Note: LR11, page 90 includes a section on The Algebra of Tax Incidence. This is worthwhile review, to prove more rigorously the diagrammatic conclusions we will develop in class. Once again, there is no need to memorize formulae....
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